On June 5, 2003 the SEC released its final rules amending the certification requirements under Sections 302 and 906 of the Sarbanes-Oxley Act. These final rules require companies to include the Section 302 and Section 906 certifications as exhibits. Separate Section 302 certifications by the CEO and CFO are required for quarterly reports on Form 10-Q and annual reports on Form 10-K (and Forms 20-F and 40-F). A Section 906 certification by the CEO and CFO, signing together or separately, is required for all reports that contain financial statements.

Effective Date for These Amendments

Beginning on August 14, 2003, companies must file the Section 302 and Section 906 certifications as exhibits to reports due on or after that date.

Key Elements of the Final Rules

Key elements of the SEC's final Section 906 and Section 302 certification rules:

• Include All Certifications as Exhibits.

Companies must include Section 302 and Section 906 certifications as exhibits to reports. The Section 302 certification language will no longer follow the report's signature page;

• Do Not Include "Internal Control" Statements Yet. The SEC has delayed implementation of the internal control rules under Section 404. For more information see our Update titled "SEC Adopts Final Rules Relating to Management's Report on Internal Control Over Financial Reporting." Until the internal control rules under Section 404 first apply to a company's annual report, certifying officers may modify the Section 302 certification to eliminate references to internal control over financial reporting;
• "Furnish" Section 906 Certification; "File" Section 302 Certification. Issuers can technically "furnish" Section 906 certifications, but must "file" Section 302 certifications; and
• Include Section 906 Certification for Form 11-K. Annual reports of employee benefits plans on Form 11-K likely require a Section 906 certification.

Both Section 302 and Section 906 Certifications Become Exhibits

Effective August 14, 2003, the SEC has amended the requirements for reports on Form 10-Q and Form 10-K (and Forms 20-F and 40-F) to move the Section 302 certification from the report's signature page to join the Section 906 certification as new exhibits under Item 601 of Regulation S-K:

• "Exhibit 31" includes the full text of the amended Section 302 certification.

• "Exhibit 32" requires the full Section 906 certification.

Note: If the SEC's Edgar filing system is not updated by August 14, 2003 to accept filings that include new Exhibits 31 and 32, companies should file the Section 302 certification and furnish the Section 906 certification under Exhibit 99.

SEC Amendment of Section 302 Certification Text, With Temporary Delay

The SEC has amended the text of the Section 302 certification to:

• add a statement that the principal executive and financial officers are responsible for designing (or overseeing the design of) "internal control over financial reporting" as well as disclosure controls and procedures;

• specify that the effectiveness of disclosure controls and procedures and internal controls and procedures for financial reporting is as of the end of the period; and
• add a "materiality" concept to "internal control over financial reporting" to facilitate limiting the quarterly certification to changes that materially affect the internal control.

Certifying officers may temporarily modify two provisions of Section 302 certifications to eliminate references to internal control over financial reporting until the company is first required to include internal control disclosure in its periodic reports: the introductory language in paragraph 4; and paragraph 4(b). 

Companies to Follow SEC Interim Guidance on Section 906 Certifications

SEC interim guidance on Section 906 certifications will remain in effect until August 14, 2003, modified by these final rules to specify that the following legend should be included:

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to [name of issuer] and will be furnished to the Securities and Exchange Commission or its staff upon request.

Section 906 Certification Likely Required for Reports on Form 6-K, Form 8-K and Form 11-K

The SEC and DOJ are currently discussing whether Section 906 certifications should extend beyond quarterly and annual reports to reports on Forms 6-K and 8-K and annual reports for employee benefits plans on Form 11-K (which must be filed if interests in the plans are required to be registered on Form S-8). This area continues to be murky because, as Section 906 certifications technically fall outside the securities laws and regulations, the SEC is reluctant to interpret this requirement. Unless and until the SEC and DOJ decide otherwise:

• companies should consider including Section 906 certifications with reports on Forms 6-K and 8-K that contain financial statements; and

• annual reports of employee benefits plans on Form 11-K should include Section 906 certifications.

Questions and Answers Q: If we are amending a prior year Form 10-Q and Form 10-K, do we need to include new Section 302 and Section 906 certifications? A: Yes, for Section 302 certification. Maybe, for Section 906 certification. Companies must file a new Section 302 certification with all amendments to periodic reports. But Section 906 certifications are required only in periodic reports that contain financial statements. So, no new Section 906 certification is required to be filed with amendments that do not contain financial statements. Q: Where can I find examples of the Section 302 and Section 906 certifications? A: Attached to this Update. The full text of the amended Section 302 certification from amended Item 601(b)(31) of Regulation S-K and a form of Section 906 certification, which incorporates the SEC's amended interim guidance, are included as attachments to this Update. Q: What are the consequences of failing to include a required Section 302 or 906 certification? A: If you fail to file a required Section 302 certification, you may not be able to use Form S-3, Rule 144 and Form S-8. Failure to furnish a required Section 906 certification may not have the same effect. A failure to file a Section 302 certification or furnish a Section 906 certification would render the report incomplete, which violates Section 13(a) of the Securities Exchange Act of 1934. For the Section 302 certification, this violation may render the company unable to use form S-3, or any other short-form registration statement that requires the company to have timely filed its reports for the prior 12 months. It may also temporarily make unavailable Rule 144, to exempt sales of the company's securities, and Form S-8, to register the company's equity compensation plans, both of which require that the company be current in its public reporting. The Section 906 certification may be exempt from these consequences because it is "furnished" rather than "filed."

Questions and Answers: Form 11-K Q: Who should make Section 906 certifications for Form 11-K, since an employee benefits plan does not have a CEO or CFO? A: The chair of the employee benefits committee (or an officer of the company with delegated authority), or the company's CEO and CFO. Since the boards of many companies have delegated the authority and fiduciary responsibility to oversee plans to an employee benefits committee comprised of officers, the chair of this committee or another officer with responsibility for the plan may make the certification. However, many companies are having the company's CEO and CFO make the certifications. In either case, companies should consider appropriate subcertifications. Q: What should we be doing to prepare to provide the Section 906 certifications for Form 11-K? A: Identify who will sign Section 906 certifications for Form 11-K, and initiate due diligence to support the certifications well in advance of the filing deadline. Because the subcertification and due diligence for these certifications are likely to take a lot of time due to the various third-party entities involved, companies should start figuring out now what they will do to support the certification. Q: Can the Section 906 certification be modified for a Form 11-K to reflect the fact that employee benefits plan financial statements only include a balance sheet, and not full financial statements? A: There is no SEC or DOJ guidance on this issue, but companies should consider modifying the certification to reflect this information. In other contexts, the SEC has specifically stated that altering the text of a required certificate invalidates the certification. Companies should consider modifying the certification to reflect that the "fairly presents" language relates to only the "net assets available for benefits and changes in net assets available for benefits of the plan."

Text of the Final Rules

This Update is intended only as a summary of the SEC release regarding the final rules. You can find an Update covering related information from the SEC open meeting on May 30, 2003 here, and you can find the full text of the final rule release on the SEC's web site at http://www.sec.gov/rules/final/33-8238.htm.

You can find discussion of other recent laws and regulations of interest on our website.

 

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